Standing Committee B

[Mr. Derek Conway in the Chair]

Enterprise Bill

Clause 239 - Replacement of Part II of Insolvency Act 1986

Question proposed, That the clause stand part of the Bill.

Nigel Waterson: I want to speak briefly, largely to set the scene and to give some structure to our debates on part 10 of the Bill. In common with many outside organisations, we welcome some of the provisions intended to improve corporate insolvency. I find it remarkable that, despite what seems to have been fairly widespread consultation, I am being deluged with briefing papers and proposed amendments from a range of specialised organisations, which have a great deal to say on the subject. For example, major concerns, which we shall develop in depth in later debates, have been raised about the scrapping of administrative receivership in most instances. That is not necessarily helpful.
 Perhaps the most dramatic problem that we will have to grapple with in our debates on part 10 is the fact that, broadly speaking, the rules in this country do not distinguish between corporate and personal insolvency. That creates a number of problems. Yet again, it seems that Government policy is driven by a rather superficial and partial understanding of what happens in the United States of America. When the right hon. Member for Hartlepool (Mr. Mandelson) visited the USA a few years ago, he came back with all sorts of ideas about encouraging enterprise and so on, and we are told that they are part of the main thrust of the reforms to be made under part 10. 
 Much of the reasoning behind part 10 is seriously flawed because it fails to distinguish between personal and business insolvency. Again, we shall develop that point when we debate the personal insolvency rules. It seems that the Government are in danger of changing the rules so dramatically that, far from encouraging enterprise, they will make borrowing more difficult and more expensive, encourage the feckless and even the dishonest to run up large amounts of credit, and leave creditors less able to recover assets from those who go into bankruptcy. At the end of the day, we may see here what happened in the USA, where there was an explosion in the number of personal insolvencies and a slight reduction in the number of corporate insolvencies. We shall go through the figures in the debate on a later clause. 
 Most people take the view that it would be wrong to remove all stigma from bankruptcy and all the difficulties associated with it because in a civilised 
 society the rule has to be that, when possible, debts are paid. To remove all the inconvenience and stigma of insolvency, particularly for individuals, would send a dangerous signal. That is particularly so now, at a time when we are seeing an explosion in consumer credit. We hear that people are borrowing more than ever, particularly on credit cards, but with less and less certainty that they will be able to repay the debt. Much of that is fuelled by the boom in house prices, a worrying development on which we shall be putting forward evidence from lenders. For instance, people taking out mortgages are borrowing not only 90 per cent. of the value of their new property, but the deposit, too. That bodes extremely ill for the future, particularly if there is a downturn in property prices, as there surely will be. 
 Those are some of the themes that we want to develop. We have also been asked to raise a mass of technical, practical concerns about how part 10, and particularly its initial provisions, will work in practice, and we shall explore those concerns in our amendments. I thought, however, that it would helpful to set out some of our thinking at this stage, and a short clause stand part debate seemed to provide the best opportunity.

Vincent Cable: I should like to echo those remarks. We have a dense agenda, and the many technical amendments, particularly to schedule 16, will take up quite a bit of the morning.
 It is useful for us to have a clause stand part debate, because the basic principle behind the proposals is not in great dispute. The Government are replacing receivership with an administration system that will attempt to enable going concerns to keep going, and we endorse that principle. For reasons that I do not fully understand, however, the consultation process did not work well. The feedback that we have—I am sure that the hon. Member for Eastbourne (Mr. Waterson) has the same sources—is that the consultation was often highly perfunctory. There was a round of consultation, a lot of feedback, and a very different draft emerged, but there was little consultation on it. This is a very specialised area, and there is a feeling among specialists that the consultation was not satisfactory and that there was not enough feedback, which is why they have suggested reams of amendments. 
 Many of the amendments deal with two sorts of failings in the Bill, which relate specifically to the Government's attempt to produce a streamlined administration system. First, the Bill often misses opportunities to speed up the administration process. Secondly, insolvency practitioners have told us that the time scale set for administration is hopelessly unrealistic. Indeed, we currently have the test-tube example of the Government's attempt to manage the administration of Railtrack. As far as I can see, the time taken far exceeds what is allowed for in the Bill. I would have hoped that there would be consultation with the Department for Transport, Local Government and the Regions on the practical problems of running a complex administration. Many of the amendments to schedule 16 relate to the concern 
 of professionals—there is no ideology involved—to make the process expeditious, as the Government originally intended. 
 In conclusion, I have a couple of general points. As the hon. Gentleman said, there is a problem with treating personal and corporate bankruptcy in the same way and in the same spirit. Poor individuals often have a problem accessing bankruptcy, and some of the new clauses suggest that that should be made easier in some cases, although the same philosophy may not be required in the corporate sector. Similarly, the philosophy of distinguishing between good and bad bankrupts is fraught with problems, although we shall come to that later.

Ken Purchase: It is appropriate to raise a couple of points that insolvency practitioners have put to me. First, on individual insolvency, the 12-month bankruptcy term may make bankruptcy more attractive to some debtors. The problem, it is suggested, is that it may substantially increase the number of orders, and the pressure on the courts to deal with them will increase by the same proportion.

Nigel Waterson: I am sure that the hon. Gentleman is aware—perhaps he was about to say this—that the Bill envisages a time scale that is significantly shorter than 12 months in many cases. Will he comment on that?

Ken Purchase: Yes, it makes worse the scenario that I am painting about the pressure on courts to determine those matters adequately and expeditiously. The Committee needs to hear, at an early point, what arrangements may be put in place to deal with those provisions in the Bill.
 My second point is that it is now the official receiver who will determine whether the financial activity of a bankrupt was reckless. There is already considerable pressure on the Insolvency Service, so we need confirmation that it will be able to cope with an even greater work load. Will the Minister say what constitutes reckless financial activity, because understanding that would go a long way towards expediting what could otherwise be a messy process, resulting in a long queue of people waiting for their cases to be determined? 
 In general, we have imported into the provision ideas that stem principally from the American chapter 11 procedures, to prevent the unnecessary loss of residual business by precipitate action. I entirely support that, but if we follow that route, it is even more important that the safeguards that I mentioned should be in place.

Jonathan Djanogly: On the general purpose behind the comparative systems of administrative receivership and administration, we currently have two complementary systems. On the face of it, in clause 239, we are being asked to get rid of one of those systems, administrative receivership, and to enforce the system of administration. However, the more I look at the provisions, the more I see that
 they would actually take something that is currently called administration and turn it into a new beast, which will be a combination of administration and receivership. Does that form the subject of a stand part debate on clause 239 or on clause 241, because the same issues arise in both clauses? It is important that we have a comparative debate, and to consider the question now, so I shall say a little more now and a little less in the debate on clause 241.
 There are serious concerns for companies about the proposal to merge the two systems. The Government contended, in the White Paper and on Second Reading, that administrative receivership was somehow unfair to unsecured creditors, but there is a transparency in the current system that has often been missed. If someone wants to do business with a company, they can always do a quick check of the companies register to see whether a floating charge exists, and if it does, that usually dictates the terms on which trade is carried out. For example, order sizes may need to be restricted and payment terms made tighter than usual. For larger lenders, there is always the possibility of debt priority agreements, which are often used in practice. 
 The main point, however, concerns the cost of one system compared with the others. Receivership is relatively cheap and much quicker than administration, which tends to be court-intensive, slow and expensive. 
 It is important to appreciate that, under the present system, most companies that go into administration are eventually wound up. That is vastly more expensive, and so incurs a greater loss to creditors, than it would be to go into administrative receivership in the first place. That is why the process is not used so much at the moment for smaller companies, for which the costs of administration generally make it unrealistic. The Bill will mean more administrations, so more costs and possibly even less money for creditors. 
 The key to realising value to creditors in the majority of insolvencies, in which perhaps a voluntary arrangement or some other negotiation with creditors is not a possible alternative, will lie directly with the speed at which the underlying business of the company can be sold. Every hour of delay will increase the likelihood of selling the business as a going concern, which will reduce the value of goodwill and therefore the return to creditors. 
 By way of comparison between the two systems, it is vital that we understand the difference between a business and a company, which comes up throughout this part of the Bill. Many who have commented on the Bill have raised the subject. A company is the corporate body that owns the business. It can sell its business, become a shell with cash in it, and distribute that cash to its shareholders. If insolvency practitioners, whether administrators or administrative receivers, moved into a company, they could force it to sell assets or the whole or part of the company's business. In that case, the distribution would not be to shareholders, who would be bottom of 
 the pile. Distribution would apply first to secured creditors and then to unsecured creditors. Shareholders often receive little or nothing. 
 Before the Bill was drafted, the basic presumption in insolvency law was that the priority was the continuation of the business, which contained the goodwill and the employees. Effectively, that took priority over the interests of the company.

Nigel Waterson: We are all agog at this important seminar, from which I am certainly benefiting, as I think is everyone. Does my hon. Friend agree that some Labour Members may have been unaware of the potential impact of the changes on employment? They may not have known that, as he suggests, there may be more of an impetus to get rid of employees of a company, rather than to make a go of it.

Jonathan Djanogly: I thank my hon. Friend for clarifying the matter. That is exactly the point that I am coming to. By moving the impetus from continuation of the business towards keeping the company going under administration, the business could suffer as the value falls. As we know, most companies in administration go into liquidation anyway. The prospect of loss of jobs would become much greater. That is a great concern about the provisions. When insolvent, the value of a company will be its goodwill, but goodwill and job security will dissolve much quicker. That is why a speedy sale of the business through administrative receivership is often preferable to dragging the process out through administration, which could make matters much worse, as my hon. Friend said.
 In certain circumstances, administration does give the company, and therefore possibly its employees, a greater chance of survival. However, that is at the risk of producing much less value to creditors if things do not go well, and if things do not go well, jobs are lost anyway. As administrations tend to end up in liquidation, that is serious. Returns to creditors are affected not only by the falling value of the company. The ongoing large costs of using insolvency practitioners are inevitably larger in administration, as is clear from the costs involved in the Railtrack administration. 
 I have been taking a straightforward line. The reality of putting the comparative systems into practice, insolvency practitioners tell me, is a lot more subtle and complicated. Administrative receivership is portrayed in the Bill as a practice that does not give everybody as fair a say in an insolvency process as in administration. In fact, since the last recession, receivership has been used increasingly sparingly by the banks. They do not generally use it as a quick way to dissolve companies—the slash and burn style that was prevalent in the 1980s. Now they use it much more as a lever to encourage insolvent companies to get round the table and enter into a debt arrangement—for example, a company voluntary arrangement. That is the best way to ensure the survival of the business. 
 The removal of administrative receivership will take away such leverage and, in effect, force companies to go down the administration route. It is important to 
 appreciate that that is a court process which, in most cases, will be unlikely to improve on decisions that are normally taken by right-thinking people who have a good idea of what is happening to a company on a day-to-day basis. I am informed by one insolvency adviser that, in the court process, judges rarely, if ever, review the insolvency accounts, because they are not accountants. In most cases, they take a view on what the insolvency practitioner puts in front of them. That often means that companies are able to run on, with fees going to the insolvency practitioners. The point is important because it is in the personal interest, although not the statutory interest, of insolvency practitioners that administration continues for as long as possible. That is how they earn their fees. That will happen increasingly when liquidation is the most appropriate route. 
 Another insolvency adviser describes the proposals as receivership by another means. That is because, importantly, floating charges will not be abolished by the legislation. Many in the insolvency world who did not see how the Bill was evolving did not realise that, but it is the case. The proposals might allow unsecured creditors a bit more of a say, but how will that help when the bank has all the votes? It is rather like sitting on the Conservative Benches in this Committee. Unsecured creditors will not receive any more money at the end of the day, but everybody will incur more costs through the administration procedure. There lies one of the big gaps in the provisions. We had a great chance to address the problem of excessive costs in the system, and we have not done so. 
 There is a major problem getting banks to lend to start-up and small businesses. That was no doubt in the Government's thinking when they made the proposals. Having looked at them carefully and spoken to many insolvency practitioners about how they work, I fear that they could make the problem worse rather than better, because in the absence of administrative receivership, banks might become less willing to lend to small companies without increased assets cover from which they can take their fixed charges. When they decide to lend, the interest could be higher because the risk is greater. In addition, a much greater use of personal guarantees is likely, which will hardly encourage the enterprise culture. I have concerns not only about the workings of the administration process vis-a-vis the administrative receivership process, but about the wider impact that the provisions might have on enterprise.

Mark Field: I shall speak briefly because my hon. Friend the Member for Huntingdon (Mr. Djanogly) has covered many points. Clearly, we shall discuss some of the Government's intentions during the next four sittings.

Alistair Carmichael: Four sittings?

Mark Field: Only four sittings, I hasten to add.
 Conservative Members support the underlying efforts to rationalise insolvency law. I confess to having been one of the legal fraternity, as I was a junior 
 lawyer in the early 1990s and was involved in several corporate restructurings. We often wished that we could have a chapter 11-type situation. That debate has continued and will no doubt be discussed more specifically. 
 I have two key concerns. My hon. Friend made the point that secured creditors will no longer have the same rights and that the real risk, especially for smaller companies, is that there will not be the same through-flow of money. There is great difficulty in this country in giving seedcorn capital to small companies. Taking the equity route is often impossible because venture capital outfits are not well suited to providing relatively small amounts of money, such as a few hundred thousand pounds. Debt, therefore, remains the main way in which such companies are funded in order to set up and to maintain operations in their first year or two of business. 
 I can understand the thinking behind the Government measure, but it has unintended consequences. A big difficulty is that, if there is no longer an opportunity for secured creditors to have a preference, companies may be starved of cash. As my hon. Friend pointed out, the other option is for individuals who are directors of such companies to act as personal guarantors, although that is also likely to create difficulties, especially for small start-up businesses. 
 I have recently been impressed by how many relatively young people—people in their 20s—are setting up businesses on their own. People of that age generally do not have assets, although they may have wealthy parents who could be personal guarantors—but that is less than ideal. The possibility that the banking sector is to be starved of money is clearly of great concern.

Tony McWalter: Does the hon. Gentleman agree that the abolition of Crown preference has the effect of introducing a significant source of new moneys into the system, which will make it more attractive for banks and others to undertake investment?

Mark Field: I should tell the Committee that I had not briefed the hon. Gentleman, because I was about to make that point.
 There is another unintended consequence of the abolition of Crown prerogative—

Nigel Waterson: Preference.

Mark Field: Preference. If only we could get rid of Crown prerogative, how easy life would be.
 In relation to Crown preference, the Government have given headline figures along the lines of £70 million. Many small companies have felt the claws of the Inland Revenue and Customs and Excise at their backs when going through financial difficulties. I should point out to the hon. Member for Hemel Hempstead (Mr. McWalter) that there is an unintended consequence even in this regard. Local Inland Revenue departments, if not Customs and 
 Excise, have been more amenable to smaller companies in letting them pay over a period of time and in making allowances for the cash-flow problems to which they may be subject. The real danger of abolishing Crown preference lies in that relationship with the Inland Revenue. 
 The affairs of many small companies will be dealt with by relatively junior members of staff who will feel that they need to perform and will find themselves criticised if many of the companies under their ward go under owing large debts to the Crown. The risk in lifting Crown preference is that, instead of having a strong relationship with the Inland Revenue so that during a certain period money need not be paid in order to assist and facilitate cash flow, such companies may go under more quickly. The Crown will realise that it has a once and for all chance of getting hold of its moneys and that if it does not do so immediately and waits for a few more months, allowing the money to go on tick, the company will go under. Thought needs to be given to that. 
 I would like to think that, in principle, at least in relation to corporate insolvency, we on the Conservative Benches support much in the legislation. However, as is so often the case, the devil will be in the detail. I point out to the hon. Member for Orkney and Shetland (Mr. Carmichael) that that is one of the reasons why we will spend the next 10 hours teasing out aspects of that detail.

Douglas Alexander: It is always a pleasure to serve under you on a Committee, Mr. Conway, and today it is a somewhat unexpected one.
 The debate has been so wide-ranging that had I not spent most of last night reading the detail of the blizzard of amendments to be discussed in the coming 10 hours, I might have thought that we had covered all the issues. However, the point on which the hon. Member for Cities of London and Westminster (Mr. Field) ended is fair. Our challenge will be to focus on the detail. The virtue of starting the sitting with such a broad debate is that it ventilates some of the principal issues. With the indulgence of the Committee, I will answer some of the substantive points that have been raised. There will be plenty of scope to address the specifics of timings. 
 I was struck, not least in light of my last appearance before the Committee, by the somewhat uncharacteristically harsh tone of the criticism of the hon. Member for Eastbourne. I will bear in mind the scale of his concern about some of the details that have been brought to his attention. I hope that I will be able to offer him some comfort on certain points. 
 The first basic point, on which I would have thought we could find common cause across the Committee, is that a huge number of representations have been made to us. The complexity of the issues that we are dealing with partly explains the volume of material that we are receiving. The hon. Member for Twickenham (Dr. Cable) added to that point by suggesting that after an initial period of consultation there had been 
 amendments or developments in policy, but there had not been time to reflect that in further consultation. In all candour, the Government sometimes find themselves between a rock and a hard place. If we are serious in conducting a consultation, amendments and developments will inevitably result. One of the benefits of the time that has been allocated to this part of the Bill will be that, where there has been innovation and development in policy in light of consultation, we will have the opportunity to discuss that. 
 The hon. Member for Eastbourne suggested that we had a superficial understanding of the position in the United States. He referred to a trip to the United States made by a previous Secretary of State. As an alumnus of an Ivy League institution, I yield to no one in my admiration of the entrepreneurial culture of north America and the United States in particular. However, the Bill has been informed not just by looking at the United States and finding out what lessons can be learned from its approach to enterprise and its entrepreneurial culture, but by looking around the world. 
 We unashamedly assert that we have looked far and wide to ensure that innovations in policy that give us a world class position in our treatment of corporate insolvency and a range of other factors are peppered throughout the Bill. We make no apology for seeking to learn from overseas instances of best practice. On timing, which I sense will cause some contention and controversy, there are very insightful and interesting examples of equivalent processes elsewhere which support the Government's proposals. 
 The hon. Member for Twickenham suggested that some of the issues before the Committee were dense. In the wee small hours of this morning, the corrupting thought entered my brain that it was not the clauses that were dense, but the Minister who was advancing them. I leave it for members of the Committee to judge. 
 We shall cover timing in specific discussions. However, it would be difficult to disaggregate it from our general approach, which is to encourage the use of administration. That is the best way forward. 
 I appreciate that the point about the company as distinct from the business is of concern to the hon. Member for Huntingdon. He was kind enough to refer to the fact that we would have the opportunity to speak about it later, but I shall address his remarks specifically. Before I do so, I want to reflect on the observations of my hon. Friend the Member for Wolverhampton, North-East (Mr. Purchase). I shall bear in mind his remarks on personal bankruptcy, but given the scale and complexity of the clauses, I shall focus—with his indulgence—primarily on corporate insolvency. I am alive to the issues that he has raised, and there will be opportunities later to consider them in detail. 
 Before I turn to general points of principle, I want to address the specific example of Railtrack because if I do not do so immediately, I fear that it may be raised on several occasions. The administration of Railtrack is being dealt with under separate and distinct provisions, and not under the provisions that we are 
 discussing. I would not want to allow that red herring to continue to swim for the rest of the morning, although reference may be made to other, more prominent administrations. Thanks to the excellent blizzard of briefing that I have just received, I can inform hon. Members that the specific provisions under which Railtrack is being dealt with consist of an administration scheme that is specific to the railways regime.

Nigel Waterson: I understand why the Minister wants to set Railtrack aside, but even if it is being dealt with under a separate regime, it is not being dealt with so wholly differently from other administrations that lessons cannot be learned.

Douglas Alexander: I am happy to accept that there is a discrete statutory basis for Railtrack. The substantive point is that the timings under the Bill preclude the possibility of highly complex administrations, whether or not they fall within the Bill's remit, and I am confident that provision is made for the court's ability to recognise complexity and reflect it in the timings available to the administrator.
 The substantive point raised by the hon. Member for Huntingdon was that company rescue rather than business rescue was the focus of the Bill. The hon. Member for Cities of London and Westminster said that he was a junior lawyer in the 1990s—a sin of which I am also guilty. When I looked at the briefing, I reflected that one of my principal tasks as a junior lawyer in the corporate law department was to establish and incorporate shelf companies for use by clients. 
 I am therefore aware of the hon. Gentleman's point about the capacity to have a legal entity that does not reflect the reality of the business. However, I am confident that the Bill reflects our intention, and that it will give the courts sufficient comfort. 
 In light of the way in which the courts interpret the statute, it may be helpful to explain to the Committee our thinking so that we have some clarity at the beginning of the discussion. We may return to some issues in discussion on the relevant clauses, but I shall give the Committee a flavour of the approach that has informed the judgment of the statutory wording. We want company rescue to be at the heart of our insolvency procedures to ensure that companies that can be saved have a decent chance of survival and are not driven to the wall unnecessarily. That will be good not just for companies, but for suppliers, customers and employees. 
 The hon. Member for Eastbourne referred to his deep and profound concern for employment. Has he had the opportunity to see the briefing on the Bill from the TUC, which I received only this morning? It welcomes the Bill. Given the TUC's track record on and regard for employment issues, I place great weight on that endorsement. 
 The first objective of administration would be to rescue the company and the whole or part of its business. We recognise that there is no use at all in making the administrator try to rescue companies that are, as the hon. Member for Huntingdon suggested, 
 merely empty shells, at the expense of rescuing viable businesses. The purpose ''to rescue the company'' evidently means to rescue it as a going concern, with the whole or much of its business intact. We are confident that the courts would interpret the purpose in exactly that way. 
 We also recognise that there will be some cases in which the break-up and sale of some or all of a company's individual businesses as a going concern will result in a better return for the creditors. Where that is the case, the duty of the administrator to act in the interests of the creditors will steer him towards that outcome. However, for administration to be effective as a rescue vehicle, it is important that we encourage companies, as well as their creditors, to use the procedure. In particular, we want to encourage smaller companies, many of which will have owner-managers, to use the procedure as a rescue vehicle at the early stages of financial difficulty. 
 Although there has been reasonable concern to ensure that statutory interpretation reflects the Government's intention, we must, equally, think about how the Bill will work in practice. To that extent, we have considered what the motivations of owner-managers would be in such circumstances. If the objective of administration were to rescue the company's businesses rather than the company itself, frankly there would be little incentive for directors of the company to enter into administration, which is one of the intentions of the Bill. We are confident, in legal terms, that the statutory interpretation bears that out.

Jonathan Djanogly: Assuming that the directors are shareholders, they would normally have every reason to want to save the company rather than the business, because then they would not lose their investment.

Douglas Alexander: I would accept that point were it not that timing is critical in such circumstances. One of our concerns was to ensure that, at the appropriate time, there would be a process of administration that offered a realistic chance of rescuing the business and company in question. The point at which directors make the judgment is key to the outcome. We believe that we have struck the appropriate balance to ensure that the motivation is there, and we are confident that statutory interpretation of the Bill will reflect our broader intentions.
 On financing, which I am sure we will revisit later this morning, the hon. Gentleman suggested that the measure was somehow damaging to the interest of the banks. I refer to a statement of the British Bankers Association: 
 ''Since then we have enjoyed a dialogue with your Department in which we have had the opportunity to explain how banks attempt to rescue businesses in severe difficulty and to suggest amendments to the proposals which would help the Government to achieve its objectives. 
 The Enterprise Bill, published today, reflects that dialogue.'' 
Many of the experienced members of the Committee are aware that such an endorsement is not offered lightly by organisations such as the British Bankers Association. We are confident that there has been 
 serious and genuine engagement by the Government and interested parties in the consultation on the Bill and that the outcome is adequately reflected in its drafting. 
 I am conscious that we will inevitably revisit several of the issues that have been raised in the stand part debate when we come to the specific parts of the schedule 16. I shall simply narrate the detail of clause 239 as a courtesy to the Committee, before asking it to support it. At that point, it would be appropriate to move on. 
 Clause 239 will do three things. It will replace the existing administration procedure provided for in part II of the Insolvency Act 1986 with schedule B1, which is set out as schedule 16 to the Bill. It will introduce schedule 17, which deals with minor and consequential amendments relating to administration, and it will provide the Secretary of State with the power to make consequential amendments to both primary and secondary legislation. On that basis, I move that the clause stand part of the Bill.

Harry Barnes: On the representations and involvement of the British Bankers Association, it may be remembered that earlier, when we were dealing with mergers, I quoted at length from an internal document of the BBA. I have been informed by a journalist who has investigated the matter that the BBA claims it is a forgery. Why it is a forgery, and why someone has gone to such great lengths to present it to me and alert me to other matters that we have been discussing, is of interest.
 Question put and agreed to. 
 Clause 239 ordered to stand part of the Bill.

Schedule 16 - Schedule B1 to Insolvency Act 1986

Douglas Alexander: I beg to move amendment No. 485, in page 239, line 18, after first ''office'', insert
''(by reason of resignation, death or otherwise)''.

Derek Conway: With this it will be convenient to take Government amendments Nos. 500 and 501.

Douglas Alexander: Amendment No. 485 will clarify paragraph 1(1)(d), to make it clear that a company does not cease to be in administration simply because an administrator resigns or dies. We would not want a company to lose the protection of the moratorium in such circumstances and for the company or creditor to have to go to the trouble and expense of putting the company back into administration because a particular administrator had resigned or died. Provisions later in the schedule deal with the replacing of an administrator in such circumstances.
 Amendments Nos. 500 and 501 change the wording of paragraphs 97(1) and 98(1) to reflect the new wording of paragraph 1(1)(d). I ask the Committee to support the amendments.

Nigel Waterson: I do not object to the amendments in principle, but I want to make the point that the first snowflake in this blizzard of amendments is a set of Government amendments. There are many Government amendments to this part of the Bill. The CBI has pointed out, not just in the context of these amendments, but more generally, that the changes to the Bill are
''very different from the measures foreshadowed in the various stages of consultation.'' 
When it refers to consultation as ''perfunctory'', we should be rather concerned. It is evident that these and what the Minister has called a blizzard of amendments will take up a lot of the Committee's time, and it is because of matters that were not thought through when the Bill was drafted. However, broadly speaking, this first raft of Government amendments, one of very many at which we shall be looking, is not at all objectionable.

Douglas Alexander: For the record, it might be helpful if I clarify the consultation process that has been undertaken. There was consultation on personal bankruptcy for the White Paper in 2000, which contained the ''Fresh Start'' proposals for insolvency. There was further consultation on personal and company proposals in July 2001. In the light of that consultation, policy was refined. It is fair to say, as I emphasised in moving the amendments, that we have sought a balanced approach. On the one hand, we have ensured genuine consultation with the parties involved, but on the other we have reflected that that has a consequential impact on drafting and recognised that amendments might, therefore, need to be made.
 I fear that the alternative is to have a consultation process but, regardless of its outcome, not introduce any amendments. A more constructive way for the Government to prove their sincerity over consultation and discussion is to ensure that, where points need to be made, either of a technical nature, such as those that I have just outlined, or more substantive ones, they are brought before the Committee so that there is an opportunity to discuss them. 
 Amendment agreed to.

Nigel Waterson: I beg to move amendment No. 403, in page 239, line 25, after ''company'', insert
''and the whole or part of its business''.

Derek Conway: With this it will be convenient to take the following amendments: No. 460, in page 239, line 25, after ''company'', insert
''or the whole or any part of its undertaking''.
 No. 575, in page 239, line 26, after ''where'', insert 
''in the opinion of the administrator''.
 No. 404, in page 239, line 26, after ''not'', insert ''in his opinion''. 
 No. 461, in page 239, line 26, after ''company'', insert 
''or the whole or any part of its undertaking''.
 No. 576, in page 239, line 30, after ''where'', insert 
''in the opinion of the administrator''.
 No. 405, in page 239, line 30, after ''not'', insert ''in his opinion''.
 No. 462, in page 239, line 30, after ''company'', insert 
''or the whole or any part of its undertaking''.
 Government amendment No. 486.

Nigel Waterson: I am happy to speak to amendments Nos. 403, 404 and 405. The Liberal Democrats will speak to their amendments, and there is also a Government amendment in the group.
 The amendments return us to the question of whether we are trying to save companies or businesses. My hon. Friend the Member for Huntingdon has dealt very eloquently with that issue, which runs through this part of the Bill. With all due respect to the Minister, it is all very well for him to say that he agrees that it is businesses that need to be saved—I paraphrase, and hope I do not do him any unfairness in doing so—but in that case, why does the Bill not say so? The Bill does not make that clear. That is why the CBI and others are quite exercised about the matter. To reiterate our position, which is also the CBI's, it is the rescue of businesses not necessarily companies that matters. 
 Sometimes, a business is best and most appropriately rescued through its corporate structure. Sometimes, it is best just to sell off the business to another organisation. Rescuing the company should never be a narrow first priority where it still has an ongoing business. I endorse the CBI's comment in its briefing that nothing is gained from rescuing empty vessels. If a company has stopped trading, there is no point in rescuing it. Amendment No. 403 is designed to echo section 8 of the 1986 Act to make it clear—it sounds like the Minister agrees with this—that surviving businesses are the first priority.

Jonathan Djanogly: The same situation may result when a vessel is full but its liabilities are even fuller.

Nigel Waterson: I am sure that that is right. A vessel may be half full or half empty and still get into such situations. The Minister has confessed to producing in a different incarnation empty vessels to put on the shelf. No doubt that was part of a tax-avoidance scheme, and there is nothing wrong with that. I am sure that he was not doing anything inappropriate or illegal.
 Amendments Nos. 404 and 405 go together. Sub-paragraphs (1)(b) and (c) identify alternative objectives where higher objectives are not reasonably practicable. The current wording could lead to frequent, unhelpful and distracting arguments about whether a higher objective is practicable. At the end of the day, the decision must be driven by the professional judgment and experience of the insolvency practitioner. Administrators should be able to progress down through the hierarchy of objectives whenever it is not practicable to achieve the higher objectives, and they are accountable for making that judgment. The amendments are designed to avoid unhelpful disputes that would distract from the central objective in a particular administration.

Derek Conway: Before I call the next speaker, I want to make it clear to the Committee that because this is a large group of amendments, unless the proposers of an amendment other than in this instance the hon. Member for Eastbourne and subsequently the Minister with Government amendment No. 406 indicate to me that they intend to divide the Committee, I will not put the questions individually. If anyone wants to divide the Committee on any of their amendments in the group, they need to inform me quietly to ensure that that happens.

Alistair Carmichael: For my part, these are points of detail rather than principle, and it is unlikely that I will seek to divide the Committee.
 Since other Members have spoken in general terms, I shall place on record my unbounded joy at the prospect of four sittings on the detail of insolvency. Like the Minister, my background involves membership of the Law Society of Scotland. However, years spent trawling around the sheriffs courts dealing with criminal court business, occasionally dabbling in personal injuries actions and, to the extreme alarm of my former employers, occasionally undertaking a domestic conveyance, do not qualify me to speak as an authority on insolvency law. 
 A useful briefing and drafting supplied by the Law Society of Scotland, the full worth of which I did not fully appreciate when I was in practice, provides the genesis of amendments Nos. 460 to 462. Since I have left practice, that organisation's usefulness has suddenly blossomed, and I must place on record my gratitude to it. The Minister may wish to express his gratitude to it, because he is still a member. Politics is a funny old business and one day we may go back to dabbling in conveyancing. 
 Amendments Nos. 460 to 462 are all the same. One is consequential on the other, and I intend to deal with them together. The Minister has already indicated a fair degree of sympathy for them during the stand part debate on clause 239. Under the Bill, the administrator of a company must perform his functions with the objective of rescuing the company. However, an administrator may believe that he or she can rescue the business of the company, or part of the business, without rescuing the company itself. In those circumstances, the administrator would not be entitled to act under the Bill. That represents a departure from the circumstances in which an administrator can act at present. 
 The amendment would ensure that paragraph (3) is consistent with provision on administration in section 83A of the Insolvency Act 1986. I am sure that I do not need to remind hon. Members of the terms of that. However, I will do, to remind myself. The terms are that administrators have frequently been able to preserve businesses or parts of them, and consequentially the employment that comes with that, even though the company itself has been beyond rescue. The amendments make it clear that that remains a permissible objective. They are intended to be supportive of the broad thrust of the schedule, and of the broad thrust of insolvency provision, which was expounded quite eloquently on Second Reading by the 
 Under-Secretary when she spoke at some length on the question of a business failure not necessarily meaning disaster. 
 The question of what is supportive or reasonably practicable may be the subject of lengthy mitigation. Under amendments Nos. 575 and 576, however, it would be for the administrator to decide what is reasonably practicable, and thus truncate—or possibly avoid—lengthy, unhelpful court proceedings.

Jonathan Djanogly: Having heard the debate so far, I would maintain that we are seeing a change of emphasis, as mentioned by the hon. Member for Orkney and Shetland, away from the prioritisation of the business towards a situation in which the survival of the company becomes the priority. I shall not go into that in great detail because I have discussed it previously, but it is an important issue.
 The Minister believes that the interests of the business are important and that a court would interpret it in that way. Why can he not see that many people have a problem with that, and are saying that there will be a problem of interpretation? If he believes that that is the case, why can we not simply insert it into the Bill and make the position clear to everyone? The Government would do well to go away and have a little think about that. 
 However, there is a second leg to the series of amendments which we have not discussed much. It concerns the situation in which the decision has to be taken on when it is appropriate to save the company, or when the administrator has to decide to either wind up the company or start selling off its assets. The question that derives from the amendments is whether it should be the administrator's opinion that dictates what is to happen, or whether there should be an objective test. The Bill leaves the test as objective. I assume that the Government would assert that there are many interests at stake and that the court should decide the terms, and I see the sense in that line of argument. On the other hand, the amendments tabled by my hon. Friends and the Liberal Democrats take a position that the administrator should decide which course is best in the circumstances. That is the position of the CBI, PricewaterhouseCoopers and others. I understand why it is necessary in the circumstances of the Bill. Businesses are in favour of that position because they want speed and certainty in decision making, and if the test is open and objective, and it is a court process, it is likely that decisions will be dragged out and delayed. 
 I support the amendments, but reluctantly. This is an instance of where the banks have had a significant say in the drafting of the Bill. They want the provisions to be as much like administrative receivership as possible. An administrator's view of how to proceed may not be objective. It will normally be a bank's view, as the banks usually appoint the administrators. A bank may want a rapid sell-off of assets when it would be better to run the company. There will often be a fine line between the two.
 The amendments assume that the administrators will always act in the best interests of the company, as they are required to do by statute, but, again, there may be a fine line. Some insolvency practitioners are better than others and, as in every profession, some firms are large and high powered and others consist of two men and a dog. Insolvency lawyers will say that they prefer to stay away from some insolvency practitioners and that some are seen within the profession as more professional than others. The problem with the Bill as drafted, which implies that there is objectivity, is that that cannot always be taken for granted. 
 The provisions are in many ways a botched job because they fall between two positions. The administration process is being consulted on with the banks, which are trying to make it as close as possible to administrative receivership. With the two distinct systems having gone, there could be a free-for-all. 
 The amendments, admittedly, would detract from the concept of parity between secured and unsecured creditors, but in the context of the Bill as a whole they would give some definition to a system that would be worse than the present one.

Douglas Alexander: I shall deal first with some of the specific points made by the hon. Member for Eastbourne and then with the points made by the hon. Member for Orkney and Shetland.
 The hon. Member for Eastbourne paraphrased my position in a somewhat cavalier way. I did not say that only business rescue matters. It may be helpful if I clarify what I said. Of course we are not opposed to business rescue when that is the best outcome for creditors. When all things are equal it is better to rescue a company than to break it up. That is consistent with our ambitions in the Bill. 
 I shall assist the Committee by clarifying the relationship between paragraphs 3(1)(a) and 3(1)(b). Sub-paragraph (1)(b) would achieve a better result for a company's creditors, but we must recognise that sub-paragraph (1)(a), which would rescue the company, takes precedence when ''reasonably practicable''. Again, I refer hon. Members to the explanatory notes on that point. 
 The hon. Member for Orkney and Shetland asked whether I would be willing to pay due respect to the amendment suggested by the Law Society of Scotland. Of course I am happy to do that. It is part of a more general system that has served this and other Committees well, because it allows us to benefit from the expertise of outside professional bodies. Indeed, I am happy to record our gratitude for the work of a range of bodies in strengthening and informing the Committee's discussions. 
 The hon. Gentleman was kind enough to mention that I was still a member of the Law Society of Scotland. I merely make an observation on the transition from being a practising solicitor in Scotland to being a Member of Parliament. It is somewhat curious that, when one is elected to the House, one receives a letter from the Law Society of Scotland indicating that, although it was previously necessary to undertake continuing professional development in 
 order to remain a member of the profession, it sees no requirement for continuing professional development for Members of Parliament. Whether it is correct in its judgment is a matter for the Committee.

Alistair Carmichael: The principal difference for me on becoming a Member—I was a solicitor in criminal practice—is that the criminals that I was used to dealing with had already been caught.

Derek Conway: Order. Much as we non-lawyers enjoyed that exchange, I hope that we can stick to the Bill.

Douglas Alexander: I shall try to keep to the subject of debate.
 Amendment No. 403 would specify that the first objective of administration was to rescue the company and the whole or part of its business. That is certainly the clear intention behind the new proposal, a point that I was happy to make in my introduction. As the hon. Member for Eastbourne said, there is no use at all in making the administrator try to rescue companies that are empty shells if it is done at the expense of rescuing viable businesses. However, we consider that the purpose ''to rescue the company'' self-evidently means to rescue it as a going concern, with the whole or much of its business intact, and that the courts would interpret the purpose in that way. 
 I draw the Committee's attention to the explanatory notes, which the hon. Member for Eastbourne was kind enough to identify in previous debates as being a useful source of expert guidance on the Government's intentions. The explanatory notes on the schedule underline the fact that we are confident that that purpose can be achieved by the statutory working offered in the Bill. 
 Amendments Nos. 460, 461 and 462 would put the breaking-up of the company and rescue of its constituent businesses on a par with the rescue of the company. Clearly, there will be some cases where the break-up and sale of some or all of a company' s individual businesses as going concerns would result in a better return to the creditors. When that is the case, the duty of the administrator under paragraph 3(2)(b) to act in the interests of the creditors as a whole will steer him towards that outcome. However, the amendments would go further than that; they would mean that in cases where all was equal, there would be no particular obligation on the administrator to rescue the company rather than breaking it up. That cannot be right, and we would therefore resist the amendments. 
 Amendments Nos. 404, 405, 575 and 576 deal with the ''reasonably practicable'' test that governs the new purpose for administration. The amendments seek to qualify this test by specifying that it means reasonably practicable in the opinion of the administrator. I, for one, would never suggest that the Law Society of Scotland's amendment might, in any way, be motivated by a desire for more work for Edinburgh lawyers; but we must be alive to the intention of the Bill, which is, whenever possible, to keep lawyers away 
 from what otherwise would be more expeditious and business-friendly processes. That is exactly how the provision will work in practice. 
 The administrator is the person on the ground and in possession of all the facts, and he is best placed to determine whether a particular course of action is reasonably practicable, on the basis of his or her experience and professional judgment. It is not the practice of the courts to second-guess the commercial judgment of administrators in such cases, and we would not expect these provisions to be interpreted in that way. However, under paragraph 3(2), the administrator must have regard to the interests of the creditors, and we would not want to tie the test of what is ''reasonably practicable'' so closely to the administrator's opinion that his or her decisions were beyond legal challenge. For example, under paragraph 73, creditors or members of the company can challenge the administrator's decisions where their interest has been unfairly prejudiced. Decisions should also be open to challenge in cases where bad faith, for example, can be established. I therefore ask hon. Members not to press their amendments.

Nigel Waterson: Like many amendments, those before us were partly intended to allow the Minister to put on record the thinking behind the clauses so that the phalanx of professionals who closely follow our every word can find out what on earth will happen in practice. He has done that. On that basis, and for other reasons, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Amendment made: No. 486, in page 239, line 34, leave out 'exercise' and insert 'perform'.—[Mr. Alexander.]

Nigel Waterson: I beg to move amendment No. 407, in page 240, line 32, at end insert—
 '(9A) An administration application shall give the name of the person the applicant proposes to be appointed administrator and shall be accompanied by a statement by that person—
(a) that he consents to act if appointed;
(b) that in his opinion the purpose of administration is reasonably likely to be achieved; and
(c) giving such other information and opinions as may be prescribed;
and for the purposes of a statement under this sub-paragraph, that person may rely on information supplied by the directors of the company (unless he has reason to doubt its accuracy).'.
 This is very much a technical amendment. It would prevent administrators from being appointed in cases that they know nothing about, and is consistent with similar provisions for out-of-court appointments. One problem with debating the present provisions is that detailed rules will be produced at some time and will be the practitioners' bible, and they may deal with the issue. Will the Minister therefore tell us whether any draft rules are floating around and, if so, what the time scale is for producing them?

Jonathan Djanogly: Why is the wording in the amendment not included here, given that it is included in, I think, paragraph 16, on non-court appointments?

Douglas Alexander: The amendment would require applications for administration that are made through the court to be accompanied by the proposed administrator's consent to act, and a statement from the proposed administrator that, in his or her opinion, the purpose of administration was reasonably likely to be achieved.
 I can confirm that the rules will deal with the information to be provided with court applications for administration, as is presently the case. In particular, the revised rules will include a requirement that court applications be accompanied by the proposed administrator's consent to act. 
 We also intend to take forward the existing requirement in rule 2.4(5) that the applicant must state that, to the best of his or her knowledge and belief, the proposed administrator is qualified to act as an insolvency practitioner in relation to the company. 
 I can confirm that no rules are available at this stage, but I assure the Committee that there will be consultation on that point later in the year. On that basis, I ask the hon. Member for Eastbourne to withdraw the amendment.

Nigel Waterson: It was helpful of the Minister to give that indication, and I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Nigel Waterson: I beg to move amendment No. 408, in page 241, leave out lines 11 and 12.
 Paragraph 11(1) confers on the court the widest possible discretion to make whatever order is appropriate in a particular case. It is, however, not appropriate in what purports to be a rescue-based system to provide the court with the discretion to order liquidation without warning and purely unilaterally on a petition that is geared to achieving the statutory purpose of administration. The practical consequences of exercising the power envisaged in paragraph 11(1) would be far-reaching and, on that basis, the wording should be significantly narrowed—hence the amendment.

Douglas Alexander: The intention behind the amendment is to remove the power of the court to treat an application for administration as a petition for winding up the company. That power would be used only in circumstances in which the court believed it inappropriate for the company to go into administration, and that the best solution would be for it to be wound up. Allowing the court to make a winding-up order in such cases would save the time and expense of presenting a one-year petition. I ask the hon. Member for Eastbourne to withdraw the amendment.

Nigel Waterson: I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Douglas Alexander: I beg to move amendment No. 582, in page 241, line 31, leave out 'or'.

Derek Conway: With this it will be convenient to take Government amendments Nos. 487 and 583.

Douglas Alexander: The amendments are technical, and solely ensure that paragraph 12(2) reflects what happens in practice. Sub-paragraph (2) sets out what makes a floating charge a qualifying floating charge, which enables the holder to appoint an administrator by the out-of-court route. It has been put to us that the documentation that creates the charge does not often specifically refer to the appointment of an administrative receiver. Instead, it simply refers to the appointment of a receiver. When that person is appointed, if he or she falls within the definitions given in, respectively for England and Wales and for Scotland, sections 29(2) and 251(b) of the Insolvency Act 1986, he or she is an administrative receiver.
 Amendments Nos. 487 and 583 will ensure that paragraph 12(2) of schedule 16 to the Bill, which relates to the out-of-court appointment of an administrator by a floating charge-holder, reflects that. Amendment No. 582 is a technical amendment to remove the ''or'' from the end of sub-paragraph (2)(b). That is necessary because amendment No. 583 adds an additional provision, sub-paragraph (2)(d), so the ''or'' will move from the end of sub-paragraph (2)(b) to after sub-paragraph (2)(c). 
 I hope that that is entirely clear.

Derek Conway: I enjoyed that enormously. Mr. Waterson, do you wish to speak to the amendments?
Mr. Waterson indicated dissent.

Derek Conway: Very sensible.
 Amendment agreed to. 
 Amendments made: No. 487, in page 241, line 32, leave out 
'appoint an administrative receiver of the company' and insert 'make an appointment which would be the appointment of an administrative receiver within the meaning given by section 29(2)'. 
No. 583, in page 241, line 33, after sub-sub-paragraph (c) insert 
(d) purports to empower the holder of a floating charge in Scotland to appoint a receiver who on appointment would be an administrative receiver.'.—[Mr. Alexander.]

Vincent Cable: I beg to move amendment No. 578, in page 242, line 2, at beginning insert—
 'Unless the consent of the holder of any prior floating charge has been given,'.

Derek Conway: With this we may discuss the following amendments: No. 531, in page 242, line 3, leave out 'two' and insert 'five'.
 No. 409, in page 242, line 4, at end insert
'or the holder of such a charge has consented to the appointment in writing'.
 No. 410, in page 242, line 18, after 'appointed', insert 
'on a winding-up petition presented by a creditor'.

Vincent Cable: I want to say a little about amendment No. 578, which is one of many technical amendments moved from the Opposition Benches. I need not repeat on every occasion that they are technical, but merely suggest from where the ideas for them came. The idea for the amendment came partly from industrialists, as represented through the CBI, partly from the financing community, which has pooled its thoughts through the Finance and Leasing Association and is in the business of providing liquidity to companies and partly from lawyers north and south of the border. There is some consensus from those different bodies as to how the Bill can be improved.
 The amendment relates, as do those in the next group, to the crisis point when a company is going into administration. The practitioners stress that there is a frantic period in which hours or minutes can be crucial, let alone days and weeks. Often, confidence collapses and creditors scramble for their assets, so it is important that the orderly process of administration starts as quickly as possible. 
 The amendment makes the point that, in many cases, the secured creditors are already in consultation and have agreed a way forward. If there were consensus among the creditors, it would be possible to save the two days provided for in the schedule by moving straight into administration. That seems a sensible and practical way to achieve what the Government want, which is to get an administration process operating quickly and smoothly. I would be surprised if the Minister found that difficult to accept.

Nigel Waterson: I very much endorse what the hon. Member for Twickenham said. In a sense, we are not masters of our own fate because we have been bombarded with amendments—many of which are highly technical—from practitioners, such as consumer credit organisations, lending institutions, the City of London Law Society, which has taken a particular interest in the matter, various accountants and insolvency practitioners. I find this part of the Bill a little like doing one's final examinations in something that one is never going to make use of again. The nearest I ever came to that was failing my conveyancing paper as a law student. I am pleased to say that I eventually passed it, but I have never had to carry out a conveyance and would never wish to, although it seems infinitely preferable to practising in insolvency.
 Like amendment No. 578, tabled by the Liberal Democrats, our amendments are partly to do with timing. Amendment No. 531 speaks for itself; it will have to, because I cannot find the briefing on it. It seems eminently sensible and will, no doubt, make everyone's life much easier. 
 Amendment No. 409 is also to do with timing. Its purpose is to ensure that no delay should occur in urgent cases when all the competing secured creditors 
 agree with the proposed measures. That chimes with the Liberal Democrat amendment. A raft of amendments, relating to various parts of the Bill, are designed to unclog the procedures, where there is some element of consensus and—as is almost always the case in administrations—an element of urgency to save the business, goodwill and jobs. 
 Amendment No. 410 has a slightly different purpose. The provisions would permit a secured creditor whose loan is in default to proceed quickly and cheaply to appoint an administrator, but it is the view of the CBI that that would be wrong in principle. Where a provisional liquidator has been appointed on a creditor's winding-up petition, it is fair to require the secured creditor to apply to the court for the appointment of an administrator. However, it would be wrong in principle to require that in cases where the provisional liquidator was appointed on the company's petition.

Douglas Alexander: I am taken by the points raised by the hon. Member for Twickenham, whose observations, especially on the two-day period, are reasonable. On that basis, I am prepared to reconsider amendments Nos. 578 and 409.

Tony McWalter: I hope that my hon. Friend will not accept the Liberal Democrat amendment as drafted, which would create the abomination of a sentence that includes the word ''unless'' twice. It would also be ambiguous.

Douglas Alexander: I cannot give my hon. Friend the comfort that he is looking for; in the wee small hours of the morning, I did not notice that point. However, he anticipated what I was about to say, namely that I hope hon. Members will feel able to withdraw amendments Nos. 578 and 409 on the basis that we will reconsider those matters and ensure that, in terms of grammar and policy, our ambitions are reflected in the statute.
 On amendments Nos. 531 and 410, I can offer less comfort. The reasoning behind the two-day notice period for the holders of prior floating charges is to make the notice requirements compatible with those for companies and their directors appointing administrators by the out-of-court route. A company or its directors must give five days notice to the floating charge-holders before appointing an administrator by the out-of-court route. During the notice period, we have provided that a floating charge-holder who is notified of the intentions of the company or its directors to appoint an administrator can choose to appoint a different administrator by an out-of-court route. In order to do that, a floating charge-holder will have to give notice to anyone who holds a prior floating charge. If the notice period were extended from two to five days, it would run beyond the notice period given by the company or its directors to the floating charge-holder. That would effectively make it impossible for the floating charge-holder to appoint an administrator by the out-of-court route in a case in which someone held a prior floating charge. That is 
 why the notice period to holders of prior floating charges needs to be two rather than five days. On that basis, I ask the hon. Gentleman to consider withdrawing the amendment. 
 I also resist amendment No. 410. The intention behind the amendment was to allow a floating charge-holder to appoint an administrator by the out-of-court route in cases in which a provisional liquidator has been appointed on the company's own petition. However, provisional liquidators are appointed by the court and it would not be right for a floating charge-holder to be able to displace a court-appointed office holder without a court hearing. In such circumstances, it would be open to floating charge-holders to apply for administration through the court. I ask the hon. Gentleman to withdraw the amendment.

Vincent Cable: I will happily do so, given the Minister's assurances. I hope that that element of give and take and flexibility will pervade the rest of the discussion. I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Vincent Cable: I beg to move amendment No. 579, in page 242, line 23, after 'file', insert
'on the next day the court office is open'

Derek Conway: With this it will be convenient to take amendment No. 513, in page 242, line 23, leave out 'with the court—' and insert
'on the next day the court office is open—'.

Vincent Cable: This amendment is in the same spirit as the last. The legal eagles have spotted that courts, unlike Tesco stores, are not open for 24 hours a day, at weekends and on bank holidays. That might present a practical problem in cases in which the administration process needs to get under way immediately or in a short time. Whereas it is necessary to complete the formalities of filing once the courts have opened, that should not be a barrier to the process of negotiation that is part of administration. The purpose of the amendment is simple; it is to enable the process of administration to proceed immediately, whether there is a public holiday or it is 3 o'clock in the morning, so that the practical business of rescuing a going concern can proceed and the formalities that take place through the courts can take place at the slightly more casual pace at which the court system operates. I hope that the Minister will find that as easy to accept as the last amendment.

Douglas Alexander: I fear that I shall disappoint, given the spirit of the constructive engagement over the last series of amendments. However, I can offer some comfort to the hon. Gentleman. We are alive to the fact that arrangements for filing at court need to reflect the practical realities of which he spoke, including the requirement of creditors for a facility to deal with cases in which time is of the essence. I am considering with colleagues who have responsibility for courts and for courts administration including provisions for filing documents outside normal court opening hours where that is necessary. I would emphasise that, as an alternative, applicants needing to make out-of-hours
 appointments will be able to use the court route into administration. Procedures are already in place to enable such applications to be dealt with, given the time constraints that sometimes operate. I therefore ask the hon. Gentleman to withdraw the amendment.

Nigel Waterson: I rise only to say that it is curious that our amendment has exactly the same wording as that of the Liberal Democrats, and that I was going to endorse what the hon. Member for Twickenham said. I am delighted to hear what the Minister has to say. If there is another practical way of dealing with a perceived problem, nobody will be happier than I am.

Vincent Cable: In view of those comments, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Douglas Alexander: I beg to move amendment No. 488, in page 242, line 24, leave out 'in the prescribed form'.

Derek Conway: With this it will be convenient to take Government amendment No. 489.

Douglas Alexander: These are simply tidying-up amendments to remove some unnecessary words. I assure my hon. Friend the Member for Hemel Hempstead that we are keen to ensure rigour and clarity wherever we can.
 Paragraphs 16(1)(a) and 27(1)(a) both refer to filing notices ''in the prescribed form''. However, later in the same paragraphs, it is stated that notices must be ''in the prescribed form''. The amendments delete the first reference in each case and I hope that hon. Members will feel able to support the amendments. 
 Amendment agreed to.

Nigel Waterson: I beg to move amendment No. 532, in page 243, leave out lines 6 and 7.

Derek Conway: With this it will be convenient to consider the following amendments:
 No. 411, in page 243, leave out line 7 and insert— 
'the notice of appointment signed by or on behalf of the person appointing the administrator has been delivered to and accepted by the administrator'.
 No. 533, in page 243, line 13, at end insert— 
 '18A The appointment of an administrator under paragraph 12 takes effect when he is notified that the requirements of paragraph 16 are satisfied.'.
 No. 534, in page 246, leave out lines 2 and 3. 
 No. 535, in page 246, line 9, at end insert— 
 '30A The appointment of an administrator under paragraph 20 takes effect when he is notified that the requirements of paragraph 27 are satisfied.'.

Nigel Waterson: Amendments Nos. 532 and 411 deal with a largely technical issue. When an administrator is appointed by notice under hand, it is essential that he should be able to act immediately. Appointments can occur late at night, just before the weekend and occasionally just before public holidays. I suspect that, life being what it is, they almost invariably occur on
 those occasions. Certainly, when I was practising full-time as a maritime lawyer, ships were almost always arrested on a Friday afternoon, usually after one had had a rather satisfactory lunch.
 Although there must be the public filing and notification obligations anticipated by paragraph 16, the appointment must be effective immediately to enable the administrator to act quickly and effectively. That is an extremely important point in practical terms. I should stress again that these questions are almost invariably raised by people who have to make the rules work in the real world. Waiting to hear that specific documents have been filed at court could cause damaging and wholly unnecessary delays, and a similar amendment should be made to clause 29. 
 Amendments Nos. 533, 534 and 535 are technical. They are designed to ensure that the administrator's appointment does not come into effect before he is aware of it, which I imagine would be helpful. I cannot imagine that anyone could reasonably argue against that, but the Minister may well try.

Douglas Alexander: I am happy, for the entertainment of the Committee, to be full of surprises. I shall try to explain the basis on which we will ask the Committee to resist the amendments.
 The Bill provides that appointments of administrators by the out-of-court routes take effect when a notice of appointment has been filed with the court. The amendments are designed to change the point at which the appointment of the administrator takes effect. However, one of the effects of administration is to put a moratorium on court proceedings, so the court must be notified at the point when that moratorium commences; that is when the administrator is appointed. In addition, the court will provide an essential underpinning to the new administration procedure. 
 Although we are providing for administrators to be appointed without court hearings, which will save considerable time and expense, it is important that all administrators should be officers of the court, whether they are appointed by the court or the out-of-court routes. That will give the courts supervisory jurisdiction over administrators, which I hope the Committee would agree is important. 
 We recognise that arrangements for filing at court need to reflect practical realities—we have considered the issues raised around that matter—and the needs of creditors, including the facility to deal with cases where time is of the essence. With the help of officials with responsibility for courts elsewhere in the United Kingdom, I am considering the options, including provision for filing documents outside normal court opening hours when that is necessary. 
 As an alternative, applicants needing to make an out-of-hours appointment will be able to use the court route into administration. Procedures are already in place to enable such applications to be dealt with. The appointment actually takes effect when the papers, including a statement from the administrator that he or she is willing to act, are filed in court. It is important 
 to concentrate on the key fact of when the supervisory jurisdiction kicks in. On that basis, I ask the Committee to oppose the amendments.

Nigel Waterson: On the basis of the Minister's claim that he has examined some of the practicalities of the matter, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Nigel Waterson: I beg to move amendment No. 412, in page 243, line 34, leave out paragraph 22.

Derek Conway: With this it will be convenient to consider amendment No. 413, in page 244, line 4, leave out 'under paragraph 20' and insert—
'(a) under paragraph 12 by a person connected with the company within the meaning of section 249, or 
 (b) under paragraph 20.'.

Nigel Waterson: Amendment No. 412 is a point of principle and amendment No. 413 is, as the Minister will have immediately spotted, of a technical nature.
 Amendment No. 412 is an expression of the idea that in a rescue culture, there is much to be said for not limiting the remedies available to all stakeholders in any way. The board of a company might legitimately take the view that in certain circumstances the appropriate course is to take the company into administration. Serial protection-seekers will get into enough trouble without that provision. 
 On amendment No. 413, if clause 22 is allowed to stand, we should prevent directors from circumventing the clause by lending the company a nominal sum secured by fixed and floating charges over the whole of the assets and then appointing an administrator under paragraph 12.

Douglas Alexander: On amendment No. 412, the administration procedure, with its attendant moratorium on creditors enforcing their rights, provides important protection for companies that get into financial difficulties. It is only right that adequate safeguards should be put in place to prevent unscrupulous companies and directors from taking advantage of the moratorium procedure to the detriment of their creditors.
 Paragraph 22 will prevent a company or its directors from appointing an administrator by the out-of-court route in the 12 months following the end of an unsuccessful CVA moratorium. The provision would ensure that companies and their directors could not abuse the procedure by making serial use of moratorium provisions in order to enjoy continued protection from their creditors. The amendment would remove that safeguard. 
 Of course, there may be very good reasons for putting a company into administration within 12 months of the ending of an unsuccessful attempt to put in place a CVA. If companies can be saved, we certainly want to encourage that to happen. In such cases, we think that it is right that the court should 
 have the opportunity to scrutinise the application and decide whether or not it is appropriate to make an administration order. 
 I therefore ask the hon. Gentleman to withdraw the amendment.

Nigel Waterson: I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Amendment made: No. 489, in page 245, line 13, leave out 'in the prescribed form'.—[Mr. Alexander.]

Nigel Waterson: I beg to move amendment No. 536, in page 247, line 25, at end insert
'or stay any voluntary winding-up of the company'.
 This is a technical amendment to ensure that paragraph 36 applies to compulsory and voluntary liquidations equally.

Jonathan Djanogly: There is a basic point to be made. Why should a liquidator want to appoint an administrator? I should have thought that an administrator's job would have been done by that stage, or that the process would have moved on.

Douglas Alexander: My official brief is uncharacteristically robust on this point. It starts by saying that the amendment is ''not necessary.'' Perhaps I can add some clarity to that statement.
 If the company is in liquidation, only the administrator will be able to apply to the court for it to be put into administration. If the court makes an administration order, it will be able to make consequential provisions to deal with the voluntary liquidation. On that basis, I ask the hon. Gentleman to withdraw the amendment.

Nigel Waterson: I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Douglas Alexander: I beg to move amendment No. 490, in page 248, line 32, at end insert
'to which the administrative receiver or receiver is entitled out of the assets of the company'.
 The amendment will make the provisions in paragraph 39 consistent with the provisions in the Insolvency Act 1986, which deal with the remuneration of a receiver or administrative receiver who has been dismissed. Section 11(4)(b) of the 1986 Act makes it clear that the indemnity referred to is an indemnity to which the receiver or administrative receiver is entitled out of the assets of the company. Without the amendment, the reference to an indemnity in paragraph 39(4)(a) could be given a wider interpretation, which is not our intention. I therefore ask hon. Members to support the amendment. 
 Amendment agreed to.

Alistair Carmichael: I beg to move amendment No. 463, in page 249, line 33, at end add—
 '(9) A provision in any contract which purports to terminate the contract on the appointment of an administrator or the giving of notice of intention to appoint an administrator shall except—
(a) with the consent of the administrator; or
(b) with the permission of the court, have no effect.'.
 This is another amendment from the awfully clever chaps from the Drumsheugh gardens in Edinburgh. The amendment would ensure that a contract could not be used to frustrate the aims of the Bill. A creditor may in some circumstances seek to secure his or her rights by a provision in a contract purporting to terminate the contract on the appointment of an administrator or the notice of intention to appoint an administrator. That contractual provision could defeat the effect of a moratorium and have an adverse impact on the administration. The purpose of the amendment is to ensure that the contract cannot be used to frustrate the Bill.

Jonathan Djanogly: I find this amendment strange. Almost every contract contains a basic provision that if a company becomes insolvent—including being put into administration—the contracting party can pull out of it. The amendment would create a one-way street in which whoever provides a service must continue to provide it without being paid. That is extremely unfair to anyone who provides a service to an insolvent company. If that route were taken, the moratorium should work both ways; while the contract is in limbo, as well as the company not having to pay, the service should not have to be provided during the moratorium. I do not suggest that as the best way forward in any event.

Douglas Alexander: This is a rare instance in which I find myself more in favour of the argument offered by the hon. Member for Huntingdon than that offered by the hon. Member for Orkney and Shetland.
 The hon. Member for Orkney and Shetland said that the amendment was inspired by the Law Society of Scotland. A keystone of jurisprudence north and south of the border is freedom of contract and that is the fundamental difficulty with the amendment. I realise that the hon. Gentleman is trying to improve the prospects of company rescue by locking in suppliers, but in practice the amendment would have the opposite effect. If those entering into contracts knew that the terms could be overridden, they might be less likely to enter into or continue a contract if they became aware that the company was in financial difficulty. Consistent with the spirit of the Bill, I ask the hon. Gentleman to withdraw the amendment.

Alistair Carmichael: If the Minister and the hon. Member for Huntingdon both believe that I am wrong, I am probably right. Notwithstanding that, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Nigel Waterson: I beg to move amendment No. 537, in page 250, leave out lines 32 and 33.
 This is another short amendment that seeks to bring paragraph 43 into line with the current requirements for administration and other corporate insolvency procedures. Accountants involved in insolvency believe that there is no justification for wider rules in administration than in other procedures.

Douglas Alexander: I have some sympathy with the hon. Gentleman's argument and am happy to consider it. The intention in paragraph 43(3) is to replicate the existing requirements in section 12 of the Insolvency Act 1986, which deals with notification of the appointment of an administrator. However, as the hon. Gentleman noted, the wording is slightly different and I am grateful to him for pointing that out.
 I should like the opportunity to consider the implications further before deciding whether the present wording should be amended. I ask the hon. Gentleman to withdraw the amendment and I undertake to consider the matter.

Nigel Waterson: On that basis, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Nigel Waterson: I beg to move amendment No. 414, in page 250, line 39, after '(a)', insert
'Unless appointed by the company'.

Derek Conway: With this it will be convenient to take amendment No. 415, in page 250, leave out line 42.

Nigel Waterson: First, there is no point in requiring an administrator to notify a company when he has been appointed by the company, under clause 21.
 Secondly, under amendment No. 415, details of creditors normally need to be assembled from a variety of sources. There is not usually 
''a list of the company's creditors'' 
to be obtained. The amendment would necessitate a small additional amendment to page 251, line 1 adding ''of the company'' after ''creditor''. The purpose of the amendment is to make the process more workable.

Mark Field: Perhaps the Minister will elucidate the reasons for the proposal because, clearly, we need to be certain about the moment at which administration begins.
 In so far as there will be a company-appointed administrator, I appreciate the comments by my hon. Friend the Member for Eastbourne that it seems perverse that there should be a burden on them. I suspect that the argument is that that would protect their position because they would have control over putting out a formal notification. I should be interested to receive some practical guidance from the Minister on why such a burden will be put in place and whether it would not be easier to put the obligation on a company to trigger the public notification that administration has begun.

Douglas Alexander: On amendment No. 414, I appreciate the point made by the hon. Member for Eastbourne that serving notice to a company appears to be unnecessary if it has appointed an administrator. However, it will be more straightforward to have the same notice requirements in all cases. It will also protect against abuse by ensuring that a company is
 aware of the appointment if someone attempts to appoint an administrator without the appropriate authority.
 Amendment No. 415 would remove the requirement for an administrator to obtain a list of a company's creditors. An administrator needs the creditors' details in order to notify them of their appointment and, in due course, to send them their proposals and invite them to a creditors' meeting, if one is to be held. Although I agree that, in practice, details of creditors normally need to be assembled from a variety of sources, once they have been assembled they will constitute a list for the purposes of the provision.

Nigel Waterson: I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Alistair Carmichael: I beg to move amendment No. 464, in page 252, line 24, leave out 'thinks' and insert 'reasonably believes'.

Derek Conway: With this we may discuss the following amendments: No. 465, in page 254, line 19, leave out 'thinks' and insert 'reasonably believes'.
 No. 470, in page 261, line 31, leave out 'thinks' and insert 'reasonably believes'. 
 No. 476, in page 263, line 41, leave out 'thinks' and insert 'reasonably believes'. 
 No. 456, in clause 243, page 170, line 26, leave out 'thinks' and insert 'reasonably believes'.

Alistair Carmichael: The purpose of the amendments is to clarify that the assessment that an administrator makes under paragraph 47(2)(b), paragraph 52(1)(c) and subsequent paragraphs will be justified on an objective basis. The Law Society of Scotland takes the view that the words ''reasonably believes'' would achieve that objective, whereas the word ''thinks'' will not. If that is what the society thinks, who am I to argue with it? If an administrator takes the view that the objectives mentioned in schedule 16(3)(1)(a) and (b) cannot be achieved, the assessment should be capable of justification on an objective, rather than a subjective, basis. It is as simple as that.

Douglas Alexander: The hon. Member for Orkney and Shetland made it clear that the group of amendments relate to a single point. I heard what he said about the desire for decisions made by the administrator, or other office holders in the terms of the ring fence, to be subject to an objective test rather than a test that he considers to be purely subjective. The word ''thinks'' in those paragraphs means that the administrator will have to reach a considered view. In such situations, the administrator's decision would be subject to a rationality test by which it would be challenged if it could be shown that no reasonable administrator would have acted in such a way in those circumstances.
 We neither expect nor want the courts to second-guess an administrator's professional or commercial judgment in exercising their duties. The administrator is the person who will have all the facts about a case 
 and will be best placed to determine what is appropriate. That is, of course, without prejudice to the rights of creditors or members under paragraph 73 to challenge an administrator's decision where it has unfairly prejudiced their interests. I therefore argue that the approach taken in the drafting best captures the spirit and intention of the Bill.

Alistair Carmichael: I assure the Minister and the Committee that I am not willing to divide the Committee on the amendment. I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Nigel Waterson: I beg to move amendment No. 416, in page 252, line 33, leave out '28 days' and insert 'three months'.
 The amendment is a perfect example of a theme that has already been touched on, and will be touched on many more times, which is that of the time limits set out in the Bill. The CBI has some pretty trenchant things to say about those. They complain about the stringent time limits, and make the point that those carrying out the consultation have been told that the proposed time limits are wholly unworkable over and over again by people who know what they are talking about. The CBI also said that experienced practitioners have described the limits as preposterous, and suggests that the only reason for sticking with them is purely political. It goes on to say that they are most unwelcome. 
 I must say that I am bemused as to what possible political benefit they could accrue to anyone, even on the assumption that the average voter would have a clue what we are all on about. Indeed, if some Martian were to descend to our Committee, he would probably wonder whether we were some strange sect that met in secret to recite chants. I slightly discount the political motive; I err more on the side of natural incompetence. There seems to be a flaw in the consultation. I cannot help feeling that everyone here would be far better occupied doing other things, and the Minister and his officials would be far better occupied sitting down with the practitioners, rather than using the elaborate procedures of the Committee to bring the two together. 
 Amendment No. 416 would delete the words ''28 days'' and insert the words ''three months''. We are advised that the period of 28 days is too short. The first few weeks of any administration make great demands on the administrator. The first priority is to establish the situation, and stabilise the business as far as possible. The practitioners have asked what is wrong with a period of three months. That figure is not just plucked from the air. It is currently prescribed by section 23 of the Insolvency Act 1986. Best practice would be to send out the administrators' proposals as soon as possible. There is no reason why an administrator should hold back once he has formed his views on the situation of a particular company. However, insistence on a period of 28 days will, apart from anything else, lead to an avalanche of applications to the court under paragraph 105 for extensions of time.
 The amendment is based wholly on practicalities and common sense. If 28 days is thought by practitioners to be absurdly inadequate in many cases, why not stick with the period of three months as set out in the 1986 Act?

Tony McWalter: Although I very much enjoy the descriptions by the hon. Member for Eastbourne of how arcane our deliberations are, it seems to me that there is an important point at stake. Most of the time, I have viewed the representations of the Opposition regarding increased or decreased time scales with considerable suspicion. In this case, however, I think that they might be on the right lines.
 I was approached by the Non-Administrative Receivers Association—the association for insolvency practitioners—at the back end of 1997. I organised a meeting for those practitioners with the then Minister to discuss the unsatisfactory state of the law in relation to insolvency and protecting businesses from going under unnecessarily.
 The issue is serious and, whether it has an electoral impact or not, it is incumbent on us to do our level best to ensure that the state of such arrangements is satisfactory. I am worried that the effect of too short a time scale could be that the administration arrangements, particularly those designed to achieve a rescue of a company or some part of a company's activities, would be frustrated by the fact that the administrator was given insufficient scope and time to devise a statement that did justice to the capacity of the company to persist with all, most or some of its activities. On this rare occasion, I hope that the Minister gives some careful thought to the representations that were made, however humorously, by the Opposition.

Derek Conway: I am glad that the hon. Gentleman has just finished to save me cutting him off mid-flow.
 It being twenty-five minutes past Eleven o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order. 
Adjourned till this day at half-past Two o'clock.